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MSP #13: WHISTLEBLOWER PROGRAM

The IRS Whistleblower Program Does Not Meet Whistleblowers’ Need for Information During Lengthy Processing Times and Does Not Sufficiently Protect Taxpayers’ Confidential Information from Re-Disclosure by Whistleblowers

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #13-1

Revise the regulations under IRC § 7623 to provide that a whistleblower “administrative proceeding” within the meaning of IRC § 6103(h)(4) commences with the whistleblower’s submission of Form 211.

IRS RESPONSE TO RECOMMENDATION: As set forth in the preamble to TD 9687, the whistleblower award administrative proceeding was provided to facilitate communications with whistleblowers before the IRS makes an award determination.  Similar to the NTA’s proposal, commenters to the proposed regulations advocated beginning the administrative proceeding upon receipt of Form 211.  Treasury and the IRS determined that beginning the administrative proceeding earlier in the lifecycle of a whistleblower claim would not meaningfully increase a whistleblower’s ability to participate in the administrative proceeding, the purpose of which is to determine what award, if any, is appropriate.  Additionally, the Whistleblower Office assigns claims out to the Operating Divisions for investigation.  As such, action on a claim may largely occur outside of the Whistleblower Office.  Treasury and the IRS determined that the adopted whistleblower administrative proceeding framework struck the appropriate balance between the protection of taxpayer returns and return information under IRC § 6103 with the interests of whistleblowers in a meaningful opportunity to participate in the administrative process.  

CORRECTIVE ACTION: N/A

TAS RESPONSE: By adopting regulations that provide for the whistleblower administrative proceeding to commence only when the IRS proposes an award, the IRS forecloses the possibility of communicating with whistleblowers pursuant to the IRC § 6103 (h)(4) exception as it develops the case.  While the amount of the award, if any, may be the focus of the whistleblower administrative hearing under existing regulations, nothing prevents the IRS from considering other information in the course of such a hearing. It is true, as the IRS notes, that action on a claim may occur while the case is being developed in another function of the IRS, but the relevance of this observation is not clear.  Whistleblowers already interact with other IRS functions, and policies and procedures are already in place to protect taxpayer information wherever the case may be in the agency.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #13-2

Revise the regulations under IRC § 6103 or IRC § 7623 to provide that the IRC §§ 7431, 7213 and 7213A penalties apply to re-disclosures of returns or return information by a whistleblower who has executed a confidentiality agreement as part of an IRC § 6103(h)(4) administrative proceeding, and that the IRC § 6103(p) safeguarding requirements also apply to such a whistleblower.

IRS RESPONSE TO RECOMMENDATION: IRC §§ 7431, 7213 and 7213A are statutory provisions establishing civil and criminal penalties for the unauthorized disclosure of returns and return information.  The IRS lacks authority to expand these provisions to disclosures made with respect to whistleblower administrative proceedings under IRC § 7623.  Additionally, the majority of whistleblower claims are rejected or denied within the first two years after submission. Requiring the execution and processing of confidentiality agreements upon submission of a Form 211 and administering compliance with the safeguarding requirements of IRC § 6103(p) would significantly increase burdens on the Whistleblower Office.

The IRS does agree with the NTA’s legislative recommendation to make unauthorized disclosures of return information by whistleblowers subject to civil and criminal penalties under IRC §§ 7431, 7213 and 7213A and to extend the IRC § 6103(p) safeguarding requirements to whistleblowers.  Treasury has made similar recommendations as part of the Administration’s Revenue Proposals for fiscal years 2014-2017.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS does not explain why it lacks authority to revise the regulations to make whistleblowers subject to statutory penalties and safeguarding requirements, but does state it does not agree these statutory provisions should be activated upon execution of confidentiality agreements submitted with Form 211. The IRS appears to be concerned with additional administrative burden, but it is not clear how simply requiring and accepting an additional form from whistleblowers creates significantly more burden.  The information the IRS would provide pursuant to the agreement could be decided on a case by case basis, depending on what stage the case is in.  Thus, not all confidentiality agreements would require the same level of administrative attention or enforcement. Moreover, as the IRS notes, since 2007, information received by the IRS from whistleblowers has resulted in collections of over $3 billion dollars in additional tax revenue.  More frequent and detailed communications between whistleblowers and the IRS which a confidentiality agreement would permit would lead to improved quality of whistleblower submissions as whistleblowers and their counsel learn what kinds of information the IRS finds useful and how that information is best presented.  Better submissions would lead to even more collections on the basis of whistleblower information.  Thus, it is not clear that any additional administrative costs of requiring confidentiality agreements would outweigh the benefits of adopting this recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #13-3

Revise the regulations under IRC § 7623 to require the IRS, upon the whistleblower’s execution of a confidentiality agreement as part of an administrative proceeding under IRC § 6103(h)(4), to provide bi-annual status updates sufficient to allow a whistleblower to monitor the progress of the claim (e.g., whether the claim resulted in an audit, whether the audit has concluded, the existence of any collected proceeds, and whether the case has been suspended) according to procedures developed by the WO.

IRS RESPONSE TO RECOMMENDATION: Recommendation 13-3 is premised on the IRS adopting Recommendation 13-2 to revise the regulations “to require whistleblowers who wish to receive status updates to execute confidentiality agreements that carry the statutory penalties imposed by IRC §§ 7431, 7213 and 7213A, and subjects them to the safeguarding requirements of IRC § 6103(p).” Taxpayer Advocate Service – 2015 Annual Report to Congress, p. 155. As discussed above, the IRS does not plan to implement Recommendation 13-2.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As the IRS notes, this recommendation presumes the IRS would adopt an earlier recommendation, that it define a whistleblower administrative proceeding as commencing prior to the phase at which an award is proposed.  Even if the statutory penalties for nondisclosure did not automatically apply, as the response to recommendation 13-2 suggests, sanctions for redisclosure of taxpayer information could be included in the terms of the confidentiality contract.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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